SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF
THE EXCHANGE ACT
For the transition period from to
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Commission file number 2-95050-D
DATA NATIONAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Colorado 84-0958983
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(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
11415 West I-70 Frontage Road North, Wheat Ridge, CO 80033
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(Address of principal executive offices)
(303) 431-1933
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the issuers Common Stock, .001 par value
as of December 31, 1996 was 1,499,165 shares.
Transition Small Business disclosure format. Yes No X
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ITEM 1. FINANCIAL STATEMENTS
DATA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Unaudited) (Audited)
December 31, December 31, September 30,
1996 1995 1996
------------ ------------ ------------
Assets
Current Assets
Cash and equivalents $ 1,648 $ 37,585 $ 4,441
Receivables:
Trade, less allowances for bad 333,206 403,059 342,592
debts of $5,077 in 1996 and
1995, respectively
Other 15,253 7,117 15,305
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Inventory, at cost 85,065 61,725 63,354
Prepaid expenses 33,276 4,513 35,523
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Total current assets 468,448 513,999 461,215
Property and equipment, at cost 739,514 475,352 724,414
Less: Accumulated depreciation (392,609) (328,512) (373,709)
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346,905 146,840 350,705
------- ------- -------
Deferred Computer Software
Development Costs 202,278 8,838 169,977
Other assets 20,931 6,030 12,871
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$1,038,562 $675,707 $994,768
Liabilities and Shareholders'
Deficit
Current Liabilities
Short-term borrowings-related
parties $156,000 - 0 - 155,000
Current portion - capital
leases 78,196 18,431 75,401
Accounts payable 181,554 67,537 138,426
Accrued expenses 97,385 27,070 81,271
Deferred revenue 75,470 141,579 26,419
Total current liabilities 588,605 254,617 476,517
------- ------- -------
Note payable - related party 745,272 869,072 743,472
Capital leases, net of
current portion 143,935 21,052 155,958
Shareholders' Deficit
Common stock $.001 par value,
authorized 100,000,000
shares; 1,499,165 and 818,190
shares issued and outstanding
at December 31, 1996 and 1995,
respectively 1,499 818 1,498
Additional paid-in capital 191,947 31,929 188,050
Accumulated deficit (632,696) (501,781) (570,727)
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(439,250) (469,034) (381,179)
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$1,038,562 $675,707 $994,768
========= ======= =======
See Note to Consolidated Financial Statements
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DATA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND LOSS (UNAUDITED)
Three Months Ended
December 31 December 31,
1996 1995
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Net sales $ 630,120 $ 734,676
Cost of sales 357,230 354,597
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Gross profit 272,890 380,079
Selling and marketing expense 126,036 103,379
General and administrative expense 176,947 150,404
Operating income (loss) (30,093) 126,296
Other income (expense)
Interest and other income 134 2,769
Interest expense, primarily
related party (27,716) (23,321)
Other expense (4,294) - 0 -
(31,876) (20,552)
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Net income (loss) $ (61,969) $ 105,744
Net income (loss) per share (.04) .13
Weighted average shares outstanding 1,498,359 818,190
See Note to Consolidated Financial Statements
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
DATA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
December 31, December 31,
1996 1995
Cash flow from operating activities
Net income (loss) $ (61,969) $ 105,744
Adjustments to reconcile net income to
cash flow from operating activities
Depreciation 18,900 9,375
Common stock issued for services 3,900 0
Changes in assets and liabilities:
(Increase) decrease in trade receivables 9,386 (148,060)
(Increase) decrease in other receivables 52 (10,067)
(Increase) in inventory (21,711) (14,033)
Decrease in other current assets 2,247 120
(Increase) decrease in other assets (8,060) 2,538
Increase in accounts payable 43,128 5,759
Increase in accrued expenses 16,114 7,000
Increase in deferred revenue 49,051 9,101
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Total adjustments 113,007 (138,267)
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Cash provided by (used in)
operating activities 51,038 (32,523)
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Cash flow from investing activities
Purchases of property and equipment (5,373) (4,911)
Deferred computer software development
costs (32,301) (8,838)
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Cash used in investing activities (37,674) (13,749)
Cash flow from financing activities
Short-term borrowings from related parties 196,000 0
Repayment of short-term borrowings from
related parties (195,000) 0
Increase in note payable-related parties 1,800 0
Repayment of capital lease obligations (18,957) (7,502)
Cash (used in) financing activities (16,157) (7,502)
(Decrease) in cash and equivalents (2,793) (53,774)
Cash and equivalents, beginning of period 4,441 91,359
Cash and equivalents, end of period $ 1,648 $ 37,585
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Supplemental cash flow information
Property and equipment acquired under
capital leases $ 9,729 $ 39,300
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Interest paid $ 9,324 $ 23,321
See Note to Consolidated Financial Statements
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DATA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
--------- -------- ---------- ----------
Balance, October 1, 1995 818,190 $ 818 $ 31,929 $(607,525)
Net income for the three months
ended December 31, 1995 - - - 105,744
------- ---- ------ -------
Balance, December 31, 1995 818,190 818 31,929 (501,781)
Issuance of common stock for
reduction of note payable to
related parties 550,000 550 125,051 -
Issuance of common stock for
services 137,500 138 32,862 -
Common stock repurchased and
retired (7,500) (8) (1,792) -
Net (loss) for the nine months
ended September 30, 1996 - - - (68,946)
--------- ------ ------- -------
Balance, September 30, 1996 1,498,190 1,498 188,050 (570,727)
--------- ------ ------- -------
Issuance of common stock for
services 975 1 3,897 -
Net (loss) for the three
months ended December 31,
1996 - - - (61,969)
--------- ------ -------- ---------
Balance, December 31, 1996 1,499,165 $1,499 $191,947 $(632,696)
========= ====== ======== ==========
See Note to Consolidated Financial Statements
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ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
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DATA NATIONAL CORPORATION AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - MANAGEMENT'S STATEMENT
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In the opinion of management, the accompanying financial statements
contain all adjustments (which consist only of normal, recurring adjustments)
necessary to fairly present the Company's financial position, results of
operations, and cash flows. The operating results presented are not
necessarily indicative of the operating results for the years ending September
30, 1997 and 1996.
Reference should be made to the notes to the consolidated financial
statements included in Form 10-KSB for the year ended September 30, 1996, for
additional information.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
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RESULTS OF OPERATIONS
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Results of Operations
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The following information should be read in conjunction with the
condensed consolidated financial statements and notes included in this
Quarterly Report and in the audited Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Form 10-K for the fiscal year ended September 30,
1996.
Quarter Ended December 31, 1996 compared to Quarter Ended December 31, 1995
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Net sales for the quarter ended December 31, 1996 were $630,120 compared
to $734,676 for the quarter ended December 31, 1995. This represents a
decrease of $104,556 or 14%. Approximately $53,000 of the decrease was due to
a decrease in revenues from Sun Oil Co. for services that were "pushed
forward" to January of 1997. An additional $18,000 of revenue received in
1995 for additional services to Sun Oil Co. was not received in 1996.
The business of the Company has been seasonal, and a large portion of
the revenue of the Company has been received from the sales of holiday
greeting cards. Revenues from the sales of this product were $199,963 for the
quarter ended December 31, 1996 and $228,243 for the quarter ended December
31, 1995. The decrease in the sales of holiday greeting cards in the amount
of $28,220 accounted for a portion of the overall decrease in sales for 1996.
In addition to the items above, the Company received $10,000 in licensing
revenue in 1995 that was not received in 1996.
Cost of goods sold was $357,230 or 57% of sales in 1996 compared to
$354,597 or 48% of sales in 1995. The higher cost of goods sold was due to
additional fixed costs in the production department, including additional
depreciation expense in the amount of $7,700 due to the purchase of new
equipment and additional fixed salaries in the amount of $9,000.
Gross profit totalled $272,889 or 43% of sales in the third quarter of
1996, compared to $380,079 or 53% of sales in 1995. The decrease in gross
profit was attributable to the factors stated above. In addition, $10,000 of
the revenue received from licensing in 1995 did not have any cost of goods
sold associated with the revenue and resulted in a higher gross margin.
Selling and marketing expenses increased by $22,657 to $126,036 or 20%
of sales in 1996 compared to $103,379 or 14% of sales in 1995. Sales and
marketing salaries increased by $7,000, due to the hiring of additional sales
and marketing personnel. Travel increased by $9,000 due to additional travel
for new contracts which will commence in January of 1997.
General and administrative (G&A) expenses increased by $26,543 to
$176,947 or 28% of sales in 1996 compared to $150,404 or 20% of sales in 1995.
Rent and depreciation expense accounted for $5,000 of the increase.
The remaining material increase in G&A of $10,000 was due to costs the
Company continued to incur in their information technology department related
to the replacement of their computer system used for production of products
and maintenance of the database. In addition to the costs reported as G&A
expense, the Company spent $32,301 in software development costs for the
quarter ended December 31, 1996. These capitalized costs will be amortized
over three years when the project is completed and the new software is being
utilized, which is anticipated in the first quarter of 1997.
Interest expense for the three months ended December 31, 1996 was
$27,716 compared to $23,321 for the three months ended December 31, 1995. The
increase was due to additional leases added in the last twelve months.
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Variability of Periodic Results and Seasonality
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Results from the three-month period cannot be used to predict the
results for the entire year. Revenues fluctuate from period to period. The
Company received seasonal revenue from the sales of holiday greeting cards of
$199,963 for the quarter ended December 31, 1996 and 228,243 for the quarter
ended December 31, 1995.
Liquidity and Capital Resources
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The Company's cash and cash equivalents decreased over the last three
months by $2,793. The inventory of the Company increased by $21,000 due to
new products. The increase in inventory was funded by an increase in accounts
payable, accrued expenses, and deferred revenue.
Short term borrowings to related parties increased by $1,000 for the
quarter ended December 31, 1996. A large portion of the borrowings were
repaid from the revolving loan facility with Norwest Business Credit, funded
on January 15, 1997.
In December of 1996 the Company commenced a private placement of its
common stock. Under the terms of the offering, the Company expects to raise a
minimum of $200,000 and a maximum of $1,000,000. As of February 12, 1997, the
Company had received the minimum in the form of $50,000 in cash and an
additional $150,000 from the related parties in the form of a reduction on the
$745,272 note to related parties.
The Company has received additional contracts for new business of
approximately $2,000,000. It is anticipated that approximately $1,500,000 of
the new business will be completed before the year ending September 30, 1997.
The Company believes that the existence of the revolving loan facility,
internal cash flow generated from new and existing business, capital leases to
be obtained for the purchase of new equipment, and additional proceeds from
the private placement of the Company's common stock will enable the Company to
meet its currently projected working capital and the cash requirements through
at least the end of the 1997 fiscal year. There can be no assurance, however,
that the additional funds will be raised and that the capital leases will be
obtained.
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DATA NATIONAL CORPORATION
FORM 10-QSB
December 31, 1996
OTHER INFORMATION
PART II
ITEM 1.Legal Proceedings.
The Company knows of no material pending legal proceedings to which the
Company is a party or to which any of its assets are subject.
ITEM 2.Changes in Securities. None
ITEM 3.Defaults Upon Senior Securities. None
ITEM 4.Submission of Matters to a Vote of Security Holders. None
ITEM 5.Other Information. None
ITEM 6.Exhibits and Reports on Form 8-K.
(a)Exhibits.
10.1 Revolving Note
10.2 Credit and Security Agreement
10.3 Collateral Account Agreement
10.4 Agreement as to Lockbox Service
10.5 Landlord's Disclaimer and Consent
10.6 Support Agreement - Richard S. Simms
10.7 Support Agreement - Donald V. Warriner
10.8 Guaranty by Corporation
10.9 Security Agreement for Guaranty
10.10 Security Agreement in Favor of Norwest Bank NA
10.11 Subordination Agreement
10.12 Assignment
(b)Reports on Form 8-K - None.
EX- 27 Financial Data Schedule
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SIGNATURES
In accordance with the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) DATA NATIONAL CORPORATION
BY(Signature) /s/ Richard S. Simms
(Name and Title) Richard S. Simms
(Date) February 14, 1997
(12-31-96.10q)
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